Financing

3 fast-casual CEOs on the high cost of fast food

There's been a lot of talk of high QSR pricing, and the leaders of Portillo's, Sweetgreen and Cava say they are pretty happy with that. It makes the fast-casual space look good.
Three fast-casual chains talked pricing at analyst conferences last week. | Photo: Shutterstock.

Lower-income diners are showing signs of cutting back on restaurant dining, as they struggle to keep up with rising costs. Fast-food chains, in particular, have been forced to play defense amid charges that prices are getting too high—though that debate may in part be a result of misinformation.

Still, the more people focus on the high cost of fast food, the better, according to three CEOs of fast-casual concepts, who last week spoke at two investor conferences.

One offered some advice to the fast feeders out there: Stop talking about prices altogether.

The leaders of Portillo’s, Sweetgreen and Cava addressed questions about value for their own brands. Here’s what they had to say, and why they believe their respective brands are well-positioned to benefit in the current macroeconomic climate.

Portillo’s; Smoking hot value

Sticking price in the consumer’s face is a non-winning formula.

So argues Portillo’s CEO Michael Osanloo, who said at the Baird Global Consumer, Technology & Services conference last week the best way to communicate value is focusing on things other than price, like how hot food is, how fast it’s delivered and how guests are made to feel welcome.

QSR brands are being “destroyed” on social media because of their price points, Osanloo said, despite their efforts to push back by saying “We’re not up 140%, we’re up 40%,” he said. “That’s not a winning argument.”

Portillo’s, meanwhile, is focusing on fantastic execution, the quantity and quality of food, and positioning the brand as a really good trade-down from casual dining.

At Portillo’s, the average price of the most popular bundle—an Italian beef sandwich, fries and a drink— is $13.57. That’s less than bundled meals at competitors (within five miles) like Shake Shack ($15.47 pre tip), Sweetgreen ($16.70 pre tip), Panera ($16.88 pre tip), Five Guys ($17.37 pre tip), Chipotle ($15.50 in store) and even Potbelly ($13.38 pre tip but $14.72 with tip)—the latter if you include a suggested tip.

Osanloo notes that the Chicago-based chain does not accept tips so that price comes without “the arm-twisted, please-tip-me-a-little” dynamic.

“So we’re still a smoking hot deal compared to everybody else,” said Osanloo. But “the reality is that smoking hot deal is still 20%, 30% higher than it was for consumers four or five years ago.

“So I think sticking price in the consumer’s face right now is a non-winning formula. Even though my prices are lower and the relative rate of change is better, it’s still a non-winning formula,” he said.

Portillo’s reported a decline in transactions of 3.2% during the first quarter that was blamed primarily on bad weather, with most units in the Midwest.

To win traffic back, Portillo’s has extended operating hours, including late-night at some units. New salads are expected to be traffic drivers, and the chain is testing advertising in the Chicagoland area, which Osanloo said “really works when the Chicago Bears are on TV.”

The chain is also working to speed service through the drive-thrus. Every 30 seconds of improvement translates to a point of comp for Portillo’s, noted Portillo’s CFO Michelle Hook. The chain has been about a minute slower with drive-thru service than it was pre-pandemic.

“We know at peak periods that we need to see the wheels moving in the drive-thru, as we say it, and that throughput matters,” said Hook. “That’s an operational focus as well, to turn transactions from negative to positive.”

Sweetgreen: Finding the Holy Grail

Sweetgreen’s CEO Jonathan Neman, meanwhile, doesn’t mind the price comparisons of late with fast food.

At the William Blair Growth Stock Conference last week, Neman mostly focused on opportunities he sees with rollout of the Infinite Kitchen format, which is an automated makeline now in two units. Seven more new Infinite Kitchens are scheduled to open this year, with four existing units to be retrofitted with the automated technology, and the format will accelerate in 2025.

So far, the Infinite Kitchen units have recorded margins of 28%, 10 points above the system average. Labor costs are lower, turnover is lower, and throughput speed is faster—so the option of pairing an Infinite Kitchen with a drive-thru could further build volumes, Neman said. The machines, which can produce up to 500 bowls an hour, can make them in about 90 seconds.

Those results could also help Sweetgreen keep prices down, which could be another huge opportunity, Neman contends. During the first quarter, Sweetgreen grew same-store sales 5%, large as a result of price increases. Traffic was flat.

But Neman said consumers, who are being increasingly selective about spending, are choosing Sweetgreen for the quality of food.

“Today, we’ve taken less price than most of our competitors. You’ve seen the price of fast food increase,” said Neman, according to a transcript from Alpha-Sense.

In the press, comparisons between meals at McDonald’s and Sweetgreen have shown a difference of $2.67, which is not a huge gap, he indicated.

“So, the relative price value has gotten better. And you can imagine a world where that, with their labor inflation, they’re going to take price,” Neman said of fast feeders. “And [with the Infinite Kitchens] if we can just have a hedge on labor, imagine the world where this higher quality experience is higher quality food for a similar price point. I think that is kind of the Holy Grail.”

Cava: Meeting in the middle

Cava’s CEO Brett Schulman at the William Blair Conference also argued the focus on fast-food pricing has helped the fast-casual segment.

Schulman said fast food prices have increased much more over the last four years than in fast casual. At the same time, traditional full-service dining is struggling to deliver a compelling value proposition to modern consumers.

Cava is at the nexus of that trend, with consumers “coming down from the higher end of full service, coming up from the lower end of fast food,” he said. During the first quarter, Cava's traffic dropped 1.2%, which was blamed on weather. Guest trends have remained strong, prompting the chain to raise guidance on same-store sales for the year to a projected 4.5% to 6.5%.

Plus, the brand is a leader in the small-but-growing Mediterranean niche, which enjoys a certain health halo.

“So that’s enhanced our value proposition,” he said. “Where it’s become very transactional, very drive-thru, kiosk-driven, consumers are saying, ‘Well, for a dollar or two more, or even the same price, I can have a really healthy meal at Cava, a great bowl of fresh food.’”

 

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